<article><p class="lead">Hopes of met coal sales into the thermal market driving index levels for high-volatile coals have been slow to realise in the last few weeks. The <i>Argus</i> assessed high-volatile A price has fallen by $95/t from a month ago to $260/t fob Hampton Roads yesterday, while the price of high-volatile B fell by $92.50/t in the same period to reach $255/t fob Hampton Roads.</p><p>But sales further out are pointing to the potential for demand from coal-fired power generation plants in the US and Europe to give US high-volatile prices the lift producers are seeking. Sales for high-volatile B coals — cited for their stronger crossover appeal — have been concluded for some time in the US domestic market, with one key high-volatile B producer securing 2023 term-contracted sales of over 500,000t. These sales would come at the expense of availability for steel mills in the Atlantic, the traditional destination for these grades. Based on the transaction levels for these 2023 high-volatile B cargoes, the seller has indicated that high-volatile B index levels would have to rise above $270/t fob to make sales into the coking coal market as attractive. Arch Resources, a major high-volatile producer in the US, has recently concluded a sale of a Panamax cargo of largely high-volatile B coals to a European utility at $310/t fob US east coast for delivery in November. US mining firms are increasingly confident that these sales will lend a floor to their high-volatile coal prices. Two US producers were heard to have offered a high-volatile A and a mid-volatile cargo at 1-1.5pc discounts to the API 2 index for mid-August loading last week. The 6,000 kcal NAR thermal coal price was up by $9.44/t at $419.61/t cif ARA yesterday while the AP2 was at $418.68/t, up by $8.74/t.</p><p>US high-volatile coal prices have been falling alongside US low-volatile coal and fob Australia prices. But spot trade in the high-volatile coal segment has been limited, owing to low European and Chinese demand, high inventories from panic buying earlier this year, low port capacity to unload in Europe and ongoing issues with rail performance in the US. US mining companies have long voiced dissatisfaction over price expectations that link US coals to fob Australia prices. "There just isn't as much US coal available, while fob Australia prices are pushed down because the Asia markets are flushed with Australian coal and buyers are waiting for those prices to fall further," a US mining company said. It is just not a fair comparison or reflective of our fundamentals, the firm added. </p><h3>Supply squeeze ahead? </h3><p class="lead">There is little expectation that European coking coal demand will increase significantly in the months ahead. Some European mills are saying that high inventory levels may carry them into the first quarter, as they run down stocks received ahead of the 10 August ban on Russian coal. </p><p>The upside that US high-volatile coal producers are waiting for will likely have to stem from demand in the thermal sector. Asian and European utilities have been reticent in openly showing interest in US coking coal for power generation purposes. There remains concerns over the high free swelling index and typically higher sulphur content that some US high-volatile coals have, and the impact that these coals would have on power plants, even in a blend. But US mining firms are in early discussions with utilities and tests are already underway for certain grades. </p><p>The lack of near-term Chinese demand for US coking coals has also contributed to the recent softness in prices. US mining firms remain optimistic that Chinese steel production will require significant catching up in the fourth quarter, even with the lowered projected steel output for 2022. <a href="https://direct.argusmedia.com/newsandanalysis/article/2355552">Steel inventories in China have registered their sharpest fall since February</a> this week, following steel output cuts. </p><p><a href="https://direct.argusmedia.com/newsandanalysis/article/2355809">Ongoing rail performance issues in the US</a> will likely mean that any significant increase in crossover met coal to thermal seaborne sales will reduce capacity for met coal exports. </p><p>"If we start getting some traction on the thermal front [after 10 August], I think that we would start to raise our sales expectation for the same products, even if they are being used in a coke battery. Otherwise, we might as well just sell them in the thermal markets if that is where we get consistently higher value," one US producer said. </p><p class="bylines">By Siew Hua Seah</p></article>
